An Update on Food Labels

I’ve gotten some on- and off-line comments about my federalism-in-food-labeling post from over the weekend. One reader points out that the market is already experimenting with food labeling, through chains like Whole Foods and Trader Joe’s, which negotiate with food manufacturers for certain production & labeling practices. Thus, if you want to do business with Whole Foods, you need to avoid a really long list of additives. Trader Joe’s, which acknowledges FDA preemption of food labeling here, is quite proud of its business of re-branding private label products so that consumers can be assured of quality and price guarantees. As the reader concluded, we can see the success of such stores as an expression of consumer demand for labeling. In reality, people don’t want to actually know what is in products, they want to know that food is safe, healthy, pro-environment, etc. When you buy at Whole Foods, you get the comfort of your convictions, without actually having to read the fine print: the store has done it for you. On this understanding, we don’t need states to experiment with label design or content: the market will sort out this problem nicely.

Another reader heatedly claims that I’ve underestimated the cost of labeling products for multiple states. So long as producers, and not distributors, do the labeling, it will be cost-prohibitive. My response to that argument is that current labeling practices are contingent on the FDA’s top-down command and control system. In a world with 50 different state practices, labeling would likely be done on-site through, say, the same type of sticker machine that currently set prices. The reader, in turn, maintains that the costs of labeling ought to considered in light of the negligible consumer benefits, and asserts that studies have found only 11% of supermarket consumers actually read labels before purchasing products. This number is debatable, of course. (A study here claims that 56% of subjects read labels some of the time). But the point that inconsistent labeling regimes would put severe burdens on smaller manufacturers obviously a good one, and would caution against allowing experimentation when the pro-consumer effects are as yet not quantified.

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Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

2 Responses

You missed an important caveat when talking about Whole Foods and Trader Joe’s – the customers that shop at those stores have demanded a higher level of labeling (or perceived safety, etc). They pay for that preference through somewhat higher prices – which is OK.

It doesn’t really counter your argument (it favors federalism or free-markets actually) but some may read the post and think “well if people want it we should make everyone do it” which isn’t really what is going on.

Dave – I’m not sure you’ve thought through the effect of on-site labeling, and it doesn’t seem to me that there is any other practical way to comply with the requirements of 50 different states. Even small grocery stores have about 30,000 different SKUs. Under your regime, grocery stores would be responsible for (1) tracking labeling requirements for 30,000 different products, including 50 different state laws, manufacturer’s marketing slogans, and the ingredients of foods (including changes driven by ingredient shortages, etc.); (2) developing an organizational system that would allow them to track the 30,000 products, which right now for the most part arrive to grocery store warehouses in identical cardboard boxes, and make sure that the correct “sticker” was affixed to the correct product, without fail; (3) buying expensive labeling machines for each store; and (4) hiring a bevy of workers to apply the stickers by hand. This would be in addition to the current cost of the label. The above costs would be prohibitive, especially for smaller retailers who can only spread costs (1) and (2) over a handful of stores. Most likely, these retailers would be forced out of business, larger retailers would not stock the distinctive products they carry and consumers would have less choice and pay a lot more.

Although I am generally skeptical of solutions that rely on the market, this happens to be a problem that the market has handled quite well. FDA’s requirements offer a minimum level of protection to people who either don’t know or don’t care about the content of products. People who are generally interested in safe, healthy foods can shop at retailers like Trader Joe’s and Whole Foods and pay a little more. People who really want to know what’s in the products they consume can shop at retailers like Vitamin Cottage, whose web site lists ‘in-depth nutritional information’ as one of the chain’s three major selling points. Of course, Vitamin Cottage consumers pay significantly more than even Whole Foods customers. Why should consumers who don’t care about nutritional information pay more to subsidize those who do?

This is essentially an intellectual exercise – there is little danger even if the law doesn’t pass of states becoming aggressive on this issue. My experience has been that most state legislators are too busy being captured by the developers’ lobby to worry about something like labeling laws.